Canada Revenue Agency regards $15-million signing bonus as employment income, but Tavares says it was an 'inducement' to be taxed at a much lower rate
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Toronto Maple Leafs star centre John Tavares is set to take the witness stand in a Toronto courtroom Tuesday, in a trial over the taxation of his signing bonus for leaving the New York Islanders to join his hometown team in 2018.
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At stake for Tavares is $8 million the Canada Revenue Agency says he owes as tax on a âsigning bonusâ of $15 million, which it regards as employment income, taxable at over 50 per cent. Tavares says it should be regarded as an âinducementâ to sign with the Leafs, and therefore taxed in the U.S. at just 15 per cent, which he has already paid.
But for the NHL and its teams, this trial that began Monday morning is a major challenge to the increasingly common practice of paying superstar athletes in contracts that are light on salary, and heavy on signing bonuses, in part because of favourable cross-border tax treatment, but also as protection from lockouts, which stop salary payments but not bonuses.
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